Manufacturing, trying to better understand salary expense
Posted: Mon Dec 12, 2016 5:14 am
So after my last thread about manufacturing revealed to me that I never considered salary costs in my games and how that affects your overall costs. Determining whether it would be more cost efficient is tricky to figure out for two main reasons, the first is because it's difficult to factor in salary costs and the second is because it's difficult to determine what your true freight cost will be without knowing how much production and sales volume you can expect.
I'm at least going to try and help simplify the salary issue by giving you some nice round numbers you can use to estimate your salary costs in the future. I came up with these numbers by starting a game, skipping forward until march (I always lose the first day of january due to not being fast enough, and I didn't want to use 29 day february) and on March 1 opening two small factories making beds with 5 manufacturing units, 2 purchasing, and 2 sales with no resources connected. I did this in Baltimore with a wage rate of $75 and these were my results.
$78083 salary expense for 1 month. Divide by total # of employees (52) is 1501.59 that each. Divide again to represent what it should be at $10 wage rate (1501.59 / 7.5) is $200.21 paid per employee per month.
Max training also gives us a monthly training expense of 39041. Divide again by 52, then once more by 7.5 suggests that training costs are $100.10 per employee, per month, per $10 of wage.
To test this I start a new game and follow the exact same procedure with the only change being a new city. I picked Moscow for it's nice even wage rate of 55.
57376 Total Salary expense divided by 52 employees divided by 5.5 (adjusts total as if it was a $10 wage) is $200.61 per employee per month per $10 of wage. Checks out
Training of 28689 divided by 52 divided by 5.5 comes out to $100.31 of training expense per employee per $10 of wage, Checks out again.
I'll test this on retail units at some point to see if those are the same but I'd imagine they are. It's actually kind of funny when you think about it. This game literally has capitalism in the name but everyone gets paid the same amount of money as everyone else in every city
As far as determining what your freight costs would be is much more tedious. If you go to a retail store in your city and check the freight costs to bring in products from the seaport you can get a pretty reasonable idea of what your freight costs will be if you were to build your factory next to the seaport. Then you just take the total # of units you expect to sell in a month and multiply it by that freight cost and that would be your number to compare to.
It gets much more complicated with more cities as city A could have modestly cheaper wage rate than City B but City B would offer modestly less freight costs and it becomes unclear which is preferable. Now you're doing all these different calculations for different cities and it can be quite a pain.
Personally if there's 1 city with a significantly cheaper wage rate that's the one I'm going to manufacture in. A large factory should eventually be able to serve multiple cities and even if it's not always the most efficient to import from that city it can help you consolidate your manufacturing. Ideally you'd like to manufacture any inputs you need in the same place you manufacture your products to reduce the overall freight cost of your supply chain. Most of the time I expect the freight saved on inputs plus the salary and training expenses saved to outweigh any freight expense you incur from freight to your retailers.
A situation where you might want to deviate from that plan is if you have a city with a high wage rate that is also very large. A good example is Tokyo which from memory has a population over 4 million and a wage rate over 80. If you're selling something like foods, snacks, or beverages you could possibly manufacture products and inputs locally the overall sales volume may be enough to bring more value than importing, but I don't have any maths to back that up at all.
I'm at least going to try and help simplify the salary issue by giving you some nice round numbers you can use to estimate your salary costs in the future. I came up with these numbers by starting a game, skipping forward until march (I always lose the first day of january due to not being fast enough, and I didn't want to use 29 day february) and on March 1 opening two small factories making beds with 5 manufacturing units, 2 purchasing, and 2 sales with no resources connected. I did this in Baltimore with a wage rate of $75 and these were my results.
$78083 salary expense for 1 month. Divide by total # of employees (52) is 1501.59 that each. Divide again to represent what it should be at $10 wage rate (1501.59 / 7.5) is $200.21 paid per employee per month.
Max training also gives us a monthly training expense of 39041. Divide again by 52, then once more by 7.5 suggests that training costs are $100.10 per employee, per month, per $10 of wage.
To test this I start a new game and follow the exact same procedure with the only change being a new city. I picked Moscow for it's nice even wage rate of 55.
57376 Total Salary expense divided by 52 employees divided by 5.5 (adjusts total as if it was a $10 wage) is $200.61 per employee per month per $10 of wage. Checks out
Training of 28689 divided by 52 divided by 5.5 comes out to $100.31 of training expense per employee per $10 of wage, Checks out again.
I'll test this on retail units at some point to see if those are the same but I'd imagine they are. It's actually kind of funny when you think about it. This game literally has capitalism in the name but everyone gets paid the same amount of money as everyone else in every city
As far as determining what your freight costs would be is much more tedious. If you go to a retail store in your city and check the freight costs to bring in products from the seaport you can get a pretty reasonable idea of what your freight costs will be if you were to build your factory next to the seaport. Then you just take the total # of units you expect to sell in a month and multiply it by that freight cost and that would be your number to compare to.
It gets much more complicated with more cities as city A could have modestly cheaper wage rate than City B but City B would offer modestly less freight costs and it becomes unclear which is preferable. Now you're doing all these different calculations for different cities and it can be quite a pain.
Personally if there's 1 city with a significantly cheaper wage rate that's the one I'm going to manufacture in. A large factory should eventually be able to serve multiple cities and even if it's not always the most efficient to import from that city it can help you consolidate your manufacturing. Ideally you'd like to manufacture any inputs you need in the same place you manufacture your products to reduce the overall freight cost of your supply chain. Most of the time I expect the freight saved on inputs plus the salary and training expenses saved to outweigh any freight expense you incur from freight to your retailers.
A situation where you might want to deviate from that plan is if you have a city with a high wage rate that is also very large. A good example is Tokyo which from memory has a population over 4 million and a wage rate over 80. If you're selling something like foods, snacks, or beverages you could possibly manufacture products and inputs locally the overall sales volume may be enough to bring more value than importing, but I don't have any maths to back that up at all.